Intel Chief Financial Officer Stacy Smith told Reuters in an interview the technology sector was leading the way out of the economic downturn as demand for PCs rebounded.

Results from the world's largest chipmakers bolstered hopes of a sector-wide recovery. Global chip sales posted their sixth consecutive monthly increase in August, and analysts forecast September chip sales will likely rose more than 6 percent from August. They cited chip orders ahead of the holidays as well as the upcoming release of Microsoft Corp's Windows 7 operating system as sales drivers.

What it says is we're on the mend, it's a rebound, said ITIC analyst Laura DiDio. This is jump-starting momentum, so the outlook for 2010 is very good.

Chief Executive Paul Otellini told analysts on a conference call that demand in the third quarter was consumer driven and that back-to-school sales exceeded expectations.

That will reassure people that we're not running into another situation where we have another inventory problem, she said.

Intel executives said their factories are running at 80 percent to 90 percent of capacity in the current quarter.

STELLAR RESULTS

Intel reported a net profit in its third quarter ended September 26 of $1.9 billion, or 33 cents per share, compared with $2.01 billion, or 35 cents per share, a year earlier.

That exceeded the 28 cent per share profit expected on average by analysts, according to Thomson Reuters I/B/E/S.

It forecast fourth-quarter revenue of $10.1 billion, plus or minus $400 million, and said gross margins in that period should be 62 percent, plus or minus 3 percentage points. Analysts polled by Thomson Reuters I/B/E/S, on average, expected fourth-quarter revenue of $9.5 billion and a gross margin of 56.86 percent.

Revenue fell 7.8 percent in the third quarter to $9.4 billion from $10.2 billion a year ago, but surpassed the $9.06 billion expected by analysts on Thomson Reuters I/B/E/S.

It feels as if there are more and more signs that there's activity, that business levels are returning to something resembling normal, said Endpoint Technologies analyst Roger Kay.

Chipmakers have suffered in the global downturn as corporations have slashed IT spending and demand for electronics has collapsed, forcing companies to roll back production and lay off workers.

Shares in programmable chipmaker Altera, which also reported on Tuesday, rose after the company met the Street's profit expectations of 19 cents a share and forecast a 6 percent to 10 percent sequential increase in revenue in the current quarter from $286.6 million in the third quarter.

CAN A RALLY BE SUSTAINABLE?

But there are lingering concerns over whether a rally in the roughly $250 billion semiconductor industry can be sustained. Some analysts said that holiday inventories may again be built up faster than products are sold, and warn that at least some of the upside investors see is from government-based stimulus rather than true end-demand.

Integrated circuit maker Linear Technology Corp, which also reported earnings on Tuesday, was less positive on a broad economic recovery. Despite beating Street expectations for revenue and profit, causing its shares to rise slightly after-hours, the company remained cautious and said that the financial effects of the global recession are certainly not over and continue to impact many of its customers.

Shares in Intel gained about 7 percent before trading up 4.3 percent in later trade at $21.37, compared with a regular close of $20.49. Stock in arch-rival Advanced Micro Devices Inc rose 5.4 percent after hours.

Shares in Dell, HP, IBM and Microsoft all gained more than 1 percent in after-hours trade.

(Additional reporting by Sue Zeidler and Gina Keating in Los Angeles, Gabriel Madway in San Francisco, and Rodrigo Campos and Ellis Mnyandu in New York; Editing by Edwin Chan and Bernard Orr)